Earnings Management, Antitrust Investigations, and Business Cycles

Posted: 23 Aug 1998

See all articles by Stephen D. Makar

Stephen D. Makar

University of Wisconsin - Oshkosh

Pervaiz Alam

Kent State University


This paper examines evidence of earnings management pertaining to antitrust investigations over business cycles. The sample consists of firms subject to merger-related antitrust scrutiny under Section 7 of the Clayton Act, during the 1973-1992 period. While industrial organization literature suggests that these firms' earnings management incentives may vary over business cycles, our results indicate that investigated firm choose income-decreasing discretionary accruals during both expansions and recessions, in order to reduce the political costs associated with Clayton Act cases. Consistent with expectations, it appears that firms that settle their cases with the U.S. Department of Justice or the Federal Trade Commission have incentives to manage accruals, even after the initial settlement has been reached, to effect subsequent regulatory-imposed wealth transfers.

JEL Classification: L40, M41

Suggested Citation

Makar, Stephen D. and Alam, Pervaiz, Earnings Management, Antitrust Investigations, and Business Cycles. Available at SSRN: https://ssrn.com/abstract=2503

Stephen D. Makar (Contact Author)

University of Wisconsin - Oshkosh ( email )

College of Business Administration
Oshkosh, WI 54901
United States
414-424-0158 (Phone)
414-424-7413 (Fax)

Pervaiz Alam

Kent State University ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1121 (Phone)
330-672-2548 (Fax)

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